Following Axis Bank’s failure to invoke a bank guarantee issued by the lender to the Department of Telecommunications (DoT) on behalf of mobile company Aircel, the telecom department has asked all telecom operators and internet service providers to not accept or renew any bank guarantees from Axis Bank.
“Axis Bank has failed to invoke a Bank Guarantee issued by them on behalf of Aircel Group of Companies. This action by Axis Bank is a serious breach of trust and contract with Government of India. In view of this, you are hereby directed not to accept any new Bank Guarantee from Axis Bank, including renewals,” the DoT said in a directive sent to all telecom operators and associations.
Telecom companies have to routinely furnish bank guarantees to meet their contractual commitments with the licensor, which in this case is the DoT. A failure in meeting the requirements such as payment of various government fees, results in the department encashing the bank guarantee as a tool to punish the defaulter. Typically, a bank guarantee is issued by a bank or any other lending institution promising to make up for a pre-stated sum of money in case of default by the entity on whose behalf it is issued.
In a statement, an Axis Bank spokesperson said: “The Bank Guarantees have been issued by us on behalf of Bharti Airtel. Payment of the said guarantees, at present, will be in violation of the orders of the Telecom Disputes Settlement and Appellate Tribunal (TDSAT). Once the order is vacated the bank will be pleased to honour the said guarantees, as per the underlying terms. This matter has been communicated to the Department of Telecommunications”.
The said TDSAT order pertains to a dispute involving Aircel and telecom department prevented Axis Bank from making payments on the invoked bank guarantee. The order has to be vacated before Axis Bank can make the payment, the source pointed out. The bank guarantee in question was issued to Bharti Airtel, in a matter involving the use of Aircel’s spectrum by Bharti Airtel, according to an industry source.
In 2016, Airtel – India’s largest telecom operator – acquired the rights to use Aircel’s 4G spectrum in eight circles for a sum of Rs 3,500 crore.